Many solar stocks are likely experiencing rapid short covering.  Sticking around for the lowest prices after serious success is a sucker’s game.  There may also be a political angle here now that President Obama’s poll numbers are looking a bit better.  The problem is that it is going to take more now than a President with a continued favorable stance to alternative energy.  The fundamentals remain weak and now investors are getting to evaluate whether there is any value of if they are value traps.  Take a look at some of the moves…

First Solar, Inc. (NASDAQ: FSLR) is up 7.5% at $49.29 against a 52-week range of $42.50 to $175.45.  The most recent short interest data showed that the short interest was 18 million shares and that was actually down from most reports in the fourth quarter of 2011

SunPower Corporation (NASDAQ: SPWR) is up over 13% at $8.53 today against a 52-week range of $4.94 to $23.36. The most recent short interest data showed that the short interest was 5.7 million shares, down from a November peak of 9.3 million shares and much lower than the 11.7 million shares short back at the end of June.

Energy Conversion Devices, Inc. (NASDAQ: ENER) is even up 12% to $1.29 and no longer at much of a delisting risk.  Its 52-week range is $0.20 to $4.29. The most recent short interest data showed that the short interest was 11.4 million shares at the lowest levels in a year since it had become a penny stock.

Trina Solar Limited (NYSE: TSL), out of China, is up a whopping 24% at $11.44 against a 52-week range of $5.28 to $31.08.  That makes for a gain of 70% so far in 2011 and it would have to almost rise 200% to challenge its year-high. The most recent short interest data showed that the short interest was 15.5 million shares.

MEMC Electronic Materials, Inc. (NYSE: WFR) is also up 8% at $5.78 against a 52-week range of $3.65 to $15.04.  That gives a gain of almost 47% so far in 2012.  The most recent short interest data showed that the short interest was 14.5 million shares and that was actually higher than at the end of 2011 even if it is lower than prior months.

JON C. OGG

Read The Ten Countries That Rule The World’s Wind Energy

The countries that produce the most wind energy are seeking energy independence. They comprise some of the world’s largest economies. Nine out of the 10 are among the 12 countries with the largest GDP. While they are not all growing at the same rate — Spain’s GDP has decreased since 2009 — all of them are looking for new energy solutions to feed their economic growth. In 2011, Canada, the country with the 10th largest GDP, increased its total wind power capacity by 24%. China, the country with the second largest GDP, increased its wind capacity by 29%.

Almost all the countries on this list are developing new renewal energy sources because their oil consumption far outpaces their oil production. All of the countries, except for Canada, consume more oil than they produce. India consumes more than four times more oil than it produces. The U.S. uses about two and a half times as much as it produces.

24/7 Wall St. used data from the Global Wind Energy Council report to compile a list of the countries that produce the most wind energy. We listed each country’s share of global wind power production in 2011, its total capacity measured in megawatts (MW), as well as the increase in capacity last year. We relied on BP’s Statistical Review of World Energy for each country’s oil use and production. For certain countries, this data was unavailable when production was below a 0.1% share of the world’s total. We also included GDP data from the World Bank.

These are the 10 countries desperate to produce wind energy.

Enerkem noted in the filing, “We intend to take advantage of the abundant supply of municipal solid waste, or MSW, which we expect to be paid to use as feedstock, to profitably produce cellulosic ethanol, a second-generation biofuel. We believe that our waste-based biofuels provide one of the most advanced solutions to the growing world demand for renewable sources of energy, while also addressing the challenges associated with waste disposal and greenhouse gas, or GHG, emissions.”

The company also noted that its pilot facility in Sherbrooke, Canada has been in operation since 2003 and has a throughput capacity of 4.8 metric tons per day.

Enerkem has applied to list its common shares on the NASDAQ Global Market under the symbol “NRKM” and on the Toronto Stock Exchange under the symbol “NKM.”  Undewriters are as follows: Goldman Sachs, Credit Suisse, and BMO Capital Markets are the only underwriters listed in the prospectus.  See the image below.

JON C. OGG

The EIA forecasts, among other things, that:

Domestic crude oil production is expected to grow by more than 20 percent over the coming decade.

That prediction relies heavily on increased production from the Gulf of Mexico. The crude is certainly there, but political pressure from environmentalists may block some exploration and production. Logistical problems of drilling in very deep water also could  compromise the forecast.

U.S. dependence on “imported petroleum liquids” will drop as:

… a result of growth in domestic oil production of over 1 million barrels per day by 2020.

The situation will get even better by 2035. Biofuel growth will aid the improvement. So will a moderation in energy use in the transportation sector. Also:

Net petroleum imports as a share of total U.S. liquid fuels consumed drop from 49 percent in 2010 to 38 percent in 2020 and 36 percent in 2035.

America has other energy benefits that will come in the mid-term future. These include a rise in natural gas production and an increase in the use of renewable fuels. These offsets to oil imports are important. The EIA says average crude oil prices will be $142 per barrel in 2035 as measured in 2010 dollars. That is very close to the price oil reached in the summer of 2008. It is amazing it will take so many years to get back there.

What use does the 2012 Annual Energy Outlook have? Many of its observations and predictions are based on dozens, if not hundreds, of events and supply and demand issues that cannot even be accurately gauged over the next two or three months. That renders the document’s contents useless.

Douglas A. McIntyre

Solar makers are trying to stage a recovery.  First Solar, Inc. (NASDAQ: FSLR) is the leader of the pack in quality and operations and its shares are up about 9% at $42.30 versus a 52-week trading range of $29.87 to $175.45.  Even more impressive is the move in shares of MEMC Electronic Materials Inc. (NYSE: WFR) with a 17% gain to $4.58 versus a 52-week range of $3.65 to $15.04.  Even the Guggenheim Solar (NYSE: TAN) ETF and the Market Vectors Solar Energy ETF (NYSE: KWT) are surging.  We are paying close attention to SunPower Corporation (NASDAQ: SPWR), Suntech Power Holdings Co. Ltd. (NYSE: STP), Yingli Green Energy Holdings Co. Ltd. (NYSE: YGE), LDK Solar Co. Ltd. (NYSE: LDK), Energy Conversion Devices, Inc. (NASDAQ: ENER) and others as well.  Here are the other movers with relative prices to their 52-week highs:

• SunPower Corporation (NASDAQ: SPWR) is up 9.5% at $7.33, down from a year high of $23.36;
• Suntech Power Holdings Co. Ltd. (NYSE: STP) is up a whopping 25% at $3.22 versus a year high of $10.83;
• Yingli Green Energy Holdings Co. Ltd. (NYSE: YGE) is up 17% at $4.85 versus a year high of $13.59;
• LDK Solar Co. Ltd. (NYSE: LDK) is up 11.3% at $5.21 against a high of $14.97 in the last year, although it is easy to stick by the guns that LDK is mathematically bankrupt without the coverage of the Chinese government.
• Energy Conversion Devices, Inc. (NASDAQ: ENER) is up 23% at $0.38 against a high of $4.80 but this is one still is unlikely to survive 2012.

In the world of ETFs, these are running as well: Guggenheim Solar (NYSE: TAN) is up 10.5% at $2.95 versus a high of $9.16 and Market Vectors Solar Energy ETF (NYSE: KWT) is up 11.5% at $4.45.  The more diversified alt-energy ETF of PowerShares WilderHill Clean Energy (NYSE: PBW) is up less than all of these with gains of 4.8% at $5.65.

Before getting too euphoric keep in mind that this is not unusual at the start of a year or new period where sector rotation favors the most beaten up sector.  Besides that, there is always the political angle on the solar sector that is front and center in the elections this year.

What we do know within reason is simple: solar PV unit prices cannot drop by another 50% or so in 2012.  If pricing has bottomed, perhaps these value traps may get to migrate to value stocks after all.  We still expect margin pressure, austerity, and a lack of the ability to pay dividends to all equal concerns of PV panel dumping by Chinese firms leading to a virtual race toward zero.

If you want to know just how big this news is, the S&P Utility Sector was the best performing sector in all of 2011 and its gains were not quite 15%.  To prove the point, the Utilities Select Sector SPDR (NYSE: XLU) ETF rose by 19% in 2011 if you adjust for the dividend payments as so many utilities offer investors dividend yields of 4% and higher.

JON C. OGG

Zhang Longgen, CFO of Jinko, is quoted in a report from Bloomberg News:

We won’t see many mergers and acquisitions at home. Many Chinese companies are more willing to die rather than be bought because it is against their culture to be acquired.

Zhang also pointed out that state-owned or controlled companies are far likelier to survive:

The power of these companies is very incredible as they have enough capital to overcome difficult market conditions. They can shut factories temporarily and resume production when the market recovers.

He did not name any specific companies, but China offered more than $25 billion in loans to several solar makers in 2010, not including Jinko.

Solar panel pricing fell nearly 50% in 2011, to an average of about $0.94/watt. Some of the industry’s largest manufacturers, like Suntech and LDK, doubled their manufacturing capacity during the same year.

Like many others in the solar industry, Zhang is not sanguine about prospects for the industry in the first half of 2012 and expects demand to drop another 10%-20%.

Paul Ausick

Rather than chasing market share, solar makers need to hold the line on supply increases, keep inventories under control, and, most important, return to profitability. The CEO of Taiwan’s Giga Solar Materials Corp. told Digitimes that he expects the market for solar panels to improve by the second quarter of the year.

Giga Solar makes the conductive aluminum paste used in solar cell manufacturing, and the company expects sales growth of 10-12% in 2012. Sales of silver paste are expected to post “tremendous growth” this year.

This prediction is based on fourth-quarter 2011 inventory clearing which should restore the supply/demand balance and help stabilize prices. Then production needs to be rationalized.

According to Solarbuzz, total shipments in 2012 need to be reduced by 4,900 megawatts from the industry’s goal of 28,200 megawatts. The industry research firm also notes that year-end inventories are estimated to be around 7,300 megawatts, down from a previous estimate of 8,600 megawatts.

The first calendar quarter of the year is a traditionally tough one for solar makers as the weather makes installations problematic. During the first quarter we could see prices and margins continuing to fall. As the weather improves so should demand, although Germany’s 15% feed-in tariff reduction will like cause a further decline in orders from German buyers.

The report in Digitimes is giving solar stocks a shot in the arm today. Yingli is up more than 8% at $4.11 in a 52-week range of $2.75-$13.59. First Solar shares are up more than 5% at $35.50 in a 52-week range of $29.87-$175.45. Sunpower’s shares are also up more than 5% at $6.56 in a 52-week range of $4.94-$23.36. Suntech shares are up about 3.5% at $2.29 in a 52-week range of $1.70-$10.83. The DJIA is up nearly 2% this morning.

Paul Ausick

The lack of Congressional action ends the $0.45/gallon blender’s credit on US-produced ethanol and the $0.54/gallon tariff on imported ethanol. US ethanol producers Archer Daniels Midland Co. (NYSE: ADM), Valero Energy Corp. (NYSE: VLO), Pacific Ethanol Inc. (NASDAQ: PEIX), and Green Plains Renewable Energy Inc. (NASDAQ: GPRE) had already seen the writing on the wall and are not likely to feel any appreciable pain from the end of the subsidies. Brazilian cane-based ethanol maker Cosan Ltd. (NYSE: CZZ) and its partner, Royal Dutch Shell plc (NYSE: RDS-A) have also been making a profit exporting ethanol to the US in spite of the tariff.

The end of the subsidy does not end the federal mandate on the use of alternative fuels for transportation. Earlier this week we looked at the nonsensical mandate adopted by Congress in 2007 that calls for 200 million gallons of alternative fuels to blended with gasoline in 2012. Virtually every drop will come from ethanol, and the producers really don’t need a subsidy on top of a mandate to make a profit. The mandate alone will do quite nicely, thank you very much.

Paul Ausick

In 2010, the mandate was lowered for that year to 6.5 million gallons and for 2012, the mandate set by the U.S. Environmental Protection Agency has been set at 8.5 million gallons. Companies like Codexis Inc. (NASDAQ: CDXS), Amyris Inc. (NASDAQ: AMRS), Gevo Inc. (NASDAQ: GEVO), Solazyme Inc. (NASDAQ: SZYM) and Kior Corp. (NASDAQ: KIOR) have so far failed to reach production levels anywhere near mandated levels. Traditional corn-ethanol makers like Archer Daniels Midland Co. (NYSE: ADM), Valero Energy Corp. (NYSE: VLO) and Pacific Ethanol Inc. (NASDAQ: PEIX) continue to supply the vast majority of nonpetroleum based fuels.

Refiners are required either to use cellulosic ethanol or to pay $1.20/gallon for the privilege of not using it. Because so little is available, refiners end up paying for something they cannot buy at any price.

Most biofuels makers have turned to producing specialty chemicals for the cosmetics and pharmaceuticals industries in order to make some revenue. Truth be told, a gallon of a cosmetic component is far more costly than a gallon of cellulosic ethanol, so these companies continue to work on developing substitute chemicals. The payback from these is more certain and nearer in time than is trying to scale up manufacturing of biofuels and facing uncertain political and distribution issues.

To show how hard things have been, the share price of many pure-play stocks pretty much sums it all up:

• Codexis trades at $5.53 and its 52-week trading range is $3.91 to $12.24.
• Amyris trades at $11.16 and its 52-week trading range is $9.90 to $33.99.
• Gevo trades at $5.59 and its 52-week trading range is $5.18 to $26.36.
• Solazyme trades at $11.27 and its 52-week trading range is $7.68 to $27.47.
• KiOR trades at $9.31 and its 52-week trading range is $8.88 to $23.85.

Paul Ausick

The Financial Times cites an internal memo from BP Solar’s CEO:

The continuing global economic challenges have significantly impacted the solar industry, making it difficult to sustain long-term returns for the company.

A company spokesperson confirmed the closure, “Over the last six months we have realised that we simply can’t make any money from solar.” Falling prices for solar panels have killed a business that BP has operated for 40 years.

On the same day, a solar industry group called the Coalition for Affordable Solar Energy (CASE) has released a letter to the CEO of Germany’s Solarworld US operations urging the company to withdraw a suit filed with the US International Trade Commission seeking tariff protection on solar panels imported from China. The letter states, that the suit “threatens the planned installation of solar electric power systems in the amount of $11 billion in 2012 and the potential installation of $60 billion currently in the total pipeline.”

The letter goes on to note:

SolarWorld’s petition will do far more damage than good to the U.S. solar industry as a whole. CASE’s membership is representative of 97-98% of America’s solar industry, as the large majority of all U.S. solar industry jobs are downstream of solar panel manufacturing in project development, logistics, construction and installation.

Solar panel makers, even including low-cost Chinese providers, are staggering under collapsing prices, while solar installers, like those that are members of CASE, are getting a big boost from the low prices for solar panels. More than 100,000 Americans are currently employed installing solar projects from rooftops to utility-scale. Solar manufacturing probably accounts for fewer than 5,000 US jobs, not counting workers in US owned factories overseas.

It should be no surprise that BP has finally decided to get out completely.

Paul Ausick